Many of the 400,000 British people living in Spain have been left in financial ruin following the banking crisis. And as the future of the euro is plunged into deeper uncertainty, they are desperate to get back to the UK.

Dennis and Christina Powell have always loved Spain. Over the years they had gone there on holiday many times.

They love its people, culture and climate so much that in 1999, after retirement, they decided to buy a three-bedroom apartment in Torrevieja on the Costa Blanca. It cost them £36,000.

For nine years they escaped the British winter and headed off to their Spanish retreat in the sun.

Dennis Powell sold his holiday home near Alicante this year amid fears for the Euro economy

Dennis and his wife tried to sell their house, but it remained on the market for three years

But in 2008, with the international banking crisis, everything changed.

Suddenly their UK savings and pensions bought a third less after the pound plunged against the euro.

And the property boom came to an end, leaving parts of Spain desolate.

The couple put their once much-loved property on the market — where it remained for more than three years.

They finally sold in February. In that time, property prices slumped by almost 70 per cent — eating into what equity they had built up.

But despite the struggle and the money they have already surrendered, Mr Powell thinks they might have got out just in the nick of time.

‘We had some wonderful times, but our holidays were getting too expensive and I didn’t want to have a home where the property market was in trouble and might take decades to recover,’ says Dennis, 73, a retired airline clerk from Hayes, Middlesex.

Thousands of British expats and second-home owners are fleeing Spain as its economy teeters.

Last week, 15 Spanish banks, and Santander UK, had their credit rating downgraded by agency Moody’s.

Bankia, Spain’s fourth largest bank, became 45 per cent owned by the Spanish government.

Average property prices have plunged by 27 per cent across Spain since 2007, but on the Mediterranean coast, home to thousands of Britons, prices have nosedived by up to 70 per cent.

The countries with the weakest economies have suffered huge dips int he housing market

The country’s biggest banks have huge exposure to the ailing housing market.

As much as €170 billion (£138 billion) in property debt looks unlikely to be paid, and huge chunks of this look set to come from mortgages that expats have simply given up on. If Greece leaves the eurozone, the problems could get even worse.

THE HEARTBREAK OF HANDING BACK KEYS

HOW TO PROTECT YOURSELF WHEN BUYING PROPERTY IN SPAIN

Get all documents translated.

If you are given something to sign, make sure you are given a 14-day cooling off period.

Take the documents home to the UK and speak to a lawyer and financial adviser over here, rather than in Spain.

Make sure the lawyer is independent and not involved in the sale in any way.

Do not use a lawyer recommended by the seller.

If YOU are buying a repossessed property, find out what happened.

If you are borrowing money, go to a reputable bank. The bank manager will want to be sure the deal is sound - and this adds another layer of checks and protection.

Thousands of expats living in Spain face having their dream homes repossessed because of the country’s economic meltdown.

Many struggling with their mortgage are set to be targeted by banks desperate to call in bad debts.

Expats who are behind on their repayments are seen by local banks as a higher risk than Spanish homeowners and therefore are key targets for repossession.

To avoid this threat, many homeowners who have fallen well behind with their monthly bills are simply handing back the keys before the banks can act.

Many of the 400,000 British people living in Spain have been left in financial ruin following the banking crisis and are desperate to get back to the UK. They have seen a crippling combination of:

Plunging property prices, which have left many who bought at the top of the market facing negative equity.

Pitiful UK savings rates that have slashed incomes for those in Spain by a third.

An exchange rate which, despite recent climbs, is still 16 per cent lower than when many expats bought their homes.

The property boom at the start of the century saw an estimated 750,000 British people buy property in Spain.

Many moved to popular areas such as the Costa del Sol in the hope of a dream retirement.

They typically bought new-build apartments or villas, and often aimed to rent these out to holidaymakers to supplement their income.

Mortgages were cheap and easily available. Thousands took loans with Spanish banks, including Banco Sabadell, BBVA and other smaller regional banks.

As well as mortgages, they also often opened savings and current accounts to take rent payments from guests, and as a way of depositing income from the UK.

These banks are now totally exposed to the growing economic crisis in Spain.

Kicked into touch: Former rugby player Matt Dawson, who also bought homes homes in Mexico and South Africa, snapped up this villa in Costa de La Luz for £1.13m at the top of the market in 2007

We feel trapped by a lack of buyers

Some expats who want to escape feel trapped because there are so few buyers available. Rob Dawson, 52, and his wife, Ann, 46, are desperate to sell their villa and leave the country.

In 2002, the couple sold their two-bedroom house in Canvey Island, Essex, for £113,000 and moved to Spain full-time.

They used their money to buy a four-bedroom villa with a swimming pool and four acres of land in the village of Barxeta, close to the Costa Blanca. They have spent an extra £80,000 doing up the property.

‘We bought the property as an investment, and we thought I would be able to carry on working in Spain,’ says Mr Dawson, a ceramic tiler.

But as the credit crunch struck and the construction industry ground to a halt, Mr Dawson couldn’t find work and has barely worked for years. The couple are desperate to sell their house, but it has been on the market for more than three years and they have had only a dozen people look at the house.

The asking price was initially set at £235,000, but has gradually been reduced to £150,000.

They also have a Spanish mortgage and are concerned that if the bank collapses they could find themselves struggling further. ‘It’s been hard from day one,’ says Mr Dawson. ‘No one is coming to Spain because of the euro and no one wants to buy our house.

‘We can’t find work. We thought we were going to make money, and now look at us. We don’t have savings and we are really struggling. We just hope the situation doesn’t get any worse.’

Taking the plunge: A fully furnished three-bedroom villa Mazarrón on the Costa Blanca was up for £191,115 last year - but prices are falling fast

I fear a wave of repossessions

There are fresh fears that savings held in Spain may be at risk because of the country’s latest banking crisis.

Many who generated an income in euros from renting out their properties are desperately trying to switch their money back to the UK.

Many others have debts far greater than the value of their home and are just giving up the keys and returning to the UK.

‘Many British people have simply stopped paying the mortgage on their Spanish home because they can’t afford it,’ says Sean Adams, international director at brokers SPF Private Clients.

Writing on the wall: The information screens at the Madrid stock exchange made for grim reading today

‘My fear is that this will lead to a new wave of repossessions. The Spanish banks are keen to sell repossessed houses, even at bargain prices, just to try to recoup some of their losses.’

Holiday homeowners wanting to find relief by switching to a cheaper mortgage rate are also likely to be thwarted.

‘Spanish banks will find any excuse not to lend,’ says Fiona Watts, managing director at International Private Finance, another broker. ‘Mortgage lending has fallen off a cliff edge because the banks don’t want to take on each others' bad debts.

‘Lots of Spanish banks wanted a piece of the action during the boom years, but many have had their fingers burnt.’

PANIC SETS IN AS EXPATS DITCH EUROS

Foreign exchange firms and specialist financial advisers, such as Guardian Wealth Management, have been swamped with calls from nervous Britons in Spain, Greece, Italy and other troubled nations.

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Moneycorp has seen the number of people changing euros to sterling double in the past month. Rival currency broker HiFX has changed £150 million from euros to sterling in just 30 days.

Caxton FX says the number of euros being cashed in since the first Greek bailout in 2010 has risen by hundreds of millions as Britons try to escape the turmoil.

FairFX, another broker, says that the figures will shoot higher still because some expats are holding out until the value of the euro creeps back from its three-and-a-half year low.

Currency firm HiFX estimates that around a third of expats with Spanish homes are trying to sell up. ‘We’ve seen a huge 175 per cent increase in people selling their European homes,’ says Mark Bodega, marketing director at currency firm HiFX.

Part of the sudden surge is due to recent rises in the value of the pound against the Euro. Switching €20,000 from euros to pounds in May 2011 would have given you £17,551; today, you get just £16,109.

Those who are desperate to sell property in Spain and still have some equity left want to sell before the value of the pound increases further and their home drops even more in value.

BEWARE A CUT-PRICE PROPERTY TRAP

While thousands are leaving Spain, estate agents are reporting a surge in interest from British-based buyers hoping to snap up a holiday home bargain.

They are being lured by the soaring value of the pound and plummeting house prices.

But these buyers may be walking into a trap as a number of companies have sprung up to offer properties repossessed from expats at knock-down prices.

‘It’s a can of worms. The euro is so low that people are flying over to Spain in the hope of getting a bargain, but this is the most dangerous time to buy,’ says Simon Conn, an overseas property finance specialist.

Summer loving: Many Britons relaxing by a pool this summer will dream of using the euro crisis to try and buy a bargain home abroad, but they should beware the pitfalls

Property websites based in Britain are claiming to offer Spanish repossessed apartments at huge discounts and with a 100 per cent mortgage. But experts say that anyone considering buying in Spain must seek advice from a reputable estate agent, a local lawyer and a good mortgage broker.

The days of making a quick buck from soaring house prices and rental income from tourists are over.

‘House prices in Spain could still fall another 10 per cent,’ Fiona Watts says. ‘We haven’t reached the bottom of the market yet.’

David Vaughan, consultant at Savills estate agent, says he has sold eight new-build apartments in the past few weeks in the marina at Sotogrande.

The development has an indoor and outdoor swimming pool, 24-hour security, a gym and spa.

‘A three-bedroom apartment was on the market for €850,000, but these buyers have got substantial discounts,’ he says. ‘Buyers should make an offer and see what kind of discount they can get — developers don’t want to advertise the deals they’re doing.’

While these are legitimate bargains, some buyers can be caught out if they buy a property that never had planning permission in the first place.

Many of the new-build developments that sprang up along the coastline in the mid-2000s were of shoddy quality and some were even built illegally.

Many Britons were caught out by one of the most notorious pieces of Spanish legislation — the Ley de Costas, or ‘coastal law’ — which effectively nationalises the coastline.

Under this law, many heartbroken homeowners saw their illegally built properties bulldozed and were offered no compensation.

‘Some villas were built by developers without building licences, proper planning permission or habitation licences,’ says Mr Conn.

‘You can be left without access to gas, electricity or water — and if the authorities discover it has been built illegally, they can come along and demolish it.’